Minimum RRIF withdrawal rates reduced

Welcome change given low-interest rates and increased longevity

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Budget 2015 b

Probably the most welcome of changes in Budget 2015 is lower minimum withdrawal rates for Registered Retirement Income Funds (RRIFs). A long time coming, it was something that had to be done to bring the RRIF program rules up to modern realities.

Not only were the previous withdrawal rates based on overly optimistic assumptions for portfolio returns in today’s low interest-rate world. Seniors are now living longer, so high minimum withdrawal rates increase the risk of outliving their nest eggs—particularly when they are forced to make large withdrawals from portfolios after a market crash such as occurred in 2008.

There is an argument to be made that the rules were not eased enough. Reports by the C.D. Howe Institute, for example, have argued that the age at which withdrawals start should be raised and withdrawal rates should be substantially lowered, even abolished. This would increase financial flexibility for retirees even more and improve the ability to deal with the problems of low returns and outliving retirement funds.

Admittedly, further relaxation of the rules could lower tax revenues. But the government will collect a great deal of tax when the final RRIF holder passes away. Considering the amount of assets at this stage often pushes the plan into the highest tax bracket, there may even be a potential to collect more taxes than if restrictions are kept tight.

Nevertheless, Budget 2015 does take a step in the right direction and enhance financial flexibility somewhat. Yet, as noted above, lower minimums for withdrawal rates come “with the danger that more capital is left in RRIFs so that when the holder passes away, their estate will have a big tax bill,” notes Doug Carroll, vice president of tax and estate planning at Invesco Canada. “If it is imortant for a retiree to pass on more wealth to heirs, it might make sense for them to withdraw more than the minimum rate.”

(Getty Images)

(Getty Images)

 

 

12 comments on “Minimum RRIF withdrawal rates reduced

  1. Lots of media coverage but what exactly Are the new rtes year by year compared to old ones?

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  2. After years of preaching save save for your retirement lowering the minr rate is a step
    in the right direction, However, they could have considered the first 2 or 3 % minimum required withdrawal
    to be tax exempt or some percentage.

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    • You are so correct. We earn dividends and capital gains in our RRSP and then on withdrawal are taxed at the full rate as if it was all interest. We should pay tax on a % of the withdrawal that accounts for lower taxes on these dividends and capital gains.

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    • that would have been wonderful

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  3. Where can I find the new withdrawal rates? Are they applicable starting in 2015? Can someone who is 75 this year apply the new rates having applied the old rates for Jan. Feb. and March already in 2015?

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    • This does very litle for those of us who withdraw a small amount from our RRIF each month but exceed the minimum withdrawal. The less money I have left the more tax I pay. I believe a change was made in 2013 which increased the withholding rates which made matters much worse. For instance the amount of tax withheld in 2012 was only 37% of what I am paying in 2015 on the same amount going into my bank account. So much for helping seniors..

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      • It is entirely your choice how much over the minimum withdrawal you take out. A bit of tax planning would have done wonders for you. Don’t blame someone else for your mismanagement.

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  4. What are the reduced riff rates if you are 85years old

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  5. I am happy to know this.Now i have a option to draw less or more money as per my needs.

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  6. Is there a formula or table somewhere showing what the new minimum withdrawals are based on age at start of the year?

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  7. My spouse took advantage of the reduction in the minimum withdrawal rate. The RRIF resulted from RRSP contributions made by me. Who must claim the re-contribution amount, my spouse or me? Thanks

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  8. I have excess withdrawls in my RRIF.I repaid the money before February 2016.My broker sent a receipt-retirement savings plan contribution receipt.
    Where do I claim this on my Tax return 2015.?I am 79 years of age and do not contribute to RRSPs any more.Please help.

    Reply

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